PARIS (Reuters) - France's financial prosecutor will take further legal steps this week in its investigation into allegations of fake work by presidential candidate Francois Fillon's wife, a newspaper reported on Sunday.

The Journal de Dimanche (JDD) cited unidentified sources saying the proceedings would involve both Fillon and his British wife Penelope.

A spokeswoman for the prosecutor said no decision had been taken. Officials representing conservative candidate Fillon, who is on a visit to the island of Reunion, could not immediately be reached for comment.

The couples' lawyer did not respond to a message requesting a response. Fillon has confirmed that his wife was paid, but has said the work was genuine.

His lawyers have questioned the legal legitimacy of the case and have asked the financial prosecutor to drop it.

Fillon is fighting to keep his presidential campaign alive and has said he will step down if he is put under formal investigation.

Opinion polls since the scandal broke almost three weeks ago show him slipping out of the race, with voters turned off by the probe into a report by the Canard Enchaine satirical weekly that his wife was paid hundreds of thousands of euros in taxpayers money for work she may not have done.

The polls, which before the affair saw him as favorite to win the presidency, show the 62 year-old former prime minister coming a close third in the first round on April 23, which would leave first and second placed Marine Le Pen of the National Front and centrist Emmanuel Macron to contest the May 7 second round - a runoff they show Macron winning comfortably.

According to the newspaper, there are two potential routes the prosecutor will take.

The first would be to refer the case to an investigating magistrate, whose role is to decide whether a person or people should be put under formal investigation.

Sometimes these referrals can be brought against 'X' - an unnamed party, but in this case, the newspaper said, it would involve named parties.

The second route would be to put the case directly before a criminal court. Under this scenario, the newspaper said, proceedings could start at the earliest within 11 days.

The JDD also said, however, that the criminal court might decide to call a halt to the proceedings - observing what it called an "electoral truce".

While campaigning for the ticket to represent his party, Fillon emphasized that he had a clean judicial record and that he would cut back on wasteful government spending.

Should The Republicans party need to choose a new candidate, the cut-off date for the collection of signatures is March 17.

The probe into the Fillon family earnings has extended to payments made to two of the couple's children. Fillon's office in parliament has been searched, and all four people have been interviewed by police investigators.

UNPRECEDENTED

Although financial and personal scandal has brought an end to many a French political career, the Fillon affair is unprecedented in that it surrounds a candidate elected by an open public vote - a first for his party and a relatively new concept in France.

In addition, the two most obvious candidates to replace him appear to be out of the running. Alain Juppe, who came second in the primary, has repeatedly said he will not take Fillon's place.

Nicolas Sarkozy, who was French president from 2007 to 2012 and came third, was on Feb. 7 ordered to stand trial over irregularities concerning an earlier failed bid for a second term in the 2012 election that was won by Socialist incumbent Francois Hollande.